<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-6383
MEDIA GENERAL, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0850433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 E. Grace St., Richmond, VA 23219
(Address of principal executive offices) Zip Code
(804) 649-6000
Registrant's telephone number, including area code
N/A
---
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1994.
Class A Common shares: 25,729,694
Class B Common shares: 556,574
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<TABLE>
<CAPTION>
September 25, December 26,
1994 1993
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,665 $ 2,942
Accounts receivable - net 61,625 62,122
Inventories 10,971 10,290
Other 27,106 17,003
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Total current assets 102,367 92,357
----------- -----------
Investments in unconsolidated affiliates 80,217 46,675
Other assets 29,106 45,561
Property, plant and equipment - net 522,939 515,225
Excess of cost of businesses acquired over
equity in net assets - net 44,209 45,424
----------- -----------
$ 778,838 $ 745,242
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 3
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<TABLE>
<CAPTION>
September 25, December 26,
1994 1993
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,520 $ 20,994
Accrued expenses and other liabilities 69,279 61,066
Income taxes payable 69 746
----------- -----------
Total current liabilities 99,868 82,806
----------- -----------
Long-term debt 176,500 261,250
Deferred income taxes 92,281 88,679
Other liabilities and deferred credits 90,247 87,073
Stockholders' equity:
Preferred stock ($5 cumulative convertible),
par value $5 per share:
Authorized 5,000,000 shares; none outstanding
Common stock, par value $5 per share:
Class A, authorized 75,000,000 shares; issued
25,720,578 and 25,695,000 shares 128,603 128,475
Class B, authorized 600,000 shares; issued
556,574 and 557,154 shares 2,783 2,786
Additional paid-in capital 6,476 5,967
Unearned compensation (2,543) (3,108)
Retained earnings 184,623 91,314
----------- -----------
Total stockholders' equity 319,942 225,434
----------- -----------
$ 778,838 $ 745,242
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 4
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 155,192 $ 147,527 $ 459,190 $ 444,300
Operating costs:
Production costs 82,870 80,350 244,708 241,088
Selling, distribution and administrative 42,520 40,029 125,836 120,686
Depreciation and amortization 14,170 14,537 42,123 43,763
----------- ----------- ----------- -----------
Total operating costs 139,560 134,916 412,667 405,537
----------- ----------- ----------- -----------
Operating income 15,632 12,611 46,523 38,763
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (4,016) (5,171) (13,217) (16,138)
Equity in net income (loss) of
unconsolidated affiliate 141 134 (1,500) 81
Gain on sale of Garden State Newspapers
investment --- --- 91,520 ---
Other, net 398 99 872 1,957
----------- ----------- ----------- -----------
Total other income (expense) (3,477) (4,938) 77,675 (14,100)
----------- ----------- ----------- -----------
Income before income taxes 12,155 7,673 124,198 24,663
----------- ----------- ----------- -----------
Income taxes 4,133 2,578 19,338 8,015
----------- ----------- ----------- -----------
Net income $ 8,022 $ 5,095 $ 104,860 $ 16,648
=========== =========== =========== ===========
Earnings per common share and equivalent $ 0.30 $ 0.20 $ 3.99 $ 0.64
=========== =========== =========== ===========
Dividends paid per common share $ 0.11 $ 0.11 $ 0.33 $ 0.33
=========== =========== =========== ===========
Weighted average common shares
and equivalents 26,307 26,156 26,265 26,119
</TABLE>
See accompanying notes.
<PAGE> 5
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
(Unaudited)
(000's)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 25, Sept. 26,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 104,860 $ 16,648
Adjustments to reconcile net income:
Depreciation and amortization 42,123 43,763
Deferred income taxes 3,768 (1,129)
Equity in undistributed net (income) loss
of unconsolidated affiliate 1,500 (81)
Gain on sale of Garden State Newspapers
investment (91,520) ---
Change in assets and liabilities 15,724 526
----------- -----------
Net cash provided by operating activities 76,455 59,727
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of Garden State
Newspapers investment 57,520 ---
Capital expenditures (49,529) (22,556)
Collection of note receivable --- 8,918
Other, net 7,918 5,201
----------- -----------
Net cash provided (used) in investing activities 15,909 (8,437)
----------- -----------
Cash flows from financing activities:
Net decrease in long-term debt (84,750) (43,750)
Dividends paid (8,661) (8,649)
Other, net 770 802
----------- -----------
Net cash used by financing activities (92,641) (51,597)
----------- -----------
Net decrease in cash (277) (307)
Cash at beginning of year 2,942 2,791
----------- -----------
Cash at end of period $ 2,665 $ 2,484
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 14,736 $ 18,441
Income taxes (net of refunds) 11,953 10,092
</TABLE>
Information about Noncash Investing Activities:
In addition to the receipt of $63 million in cash ($57.5 million, net of
related transaction costs) from the sale of its investment in Garden State
Newspapers, Inc. (GSN), the Company also received 1,200 shares of 9% cumulative
preferred stock of Denver Newspapers, Inc., with a fair value of $34 million.
See Note 6 for a further discussion of the GSN sale.
See accompanying notes.
<PAGE> 6
MEDIA GENERAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting, and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. They do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements and, accordingly, should be read in
conjunction with the consolidated financial statements and related footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
26, 1993.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of interim
financial information have been included. The results of operations for interim
periods are not necessarily indicative of the results that may be expected for
the full fiscal year.
2. Inventories are principally raw materials.
3. At September 25, 1994, 1,043,149 shares of Class A common stock were
reserved for issuance upon exercise of unqualified stock options granted.
4. Effective December 27, 1993, the Company adopted Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for
Postemployment Benefits". This standard requires that the cost of certain
benefits, such as workers' compensation, disability benefits and health care
continuation coverage provided to former or inactive employees be recognized on
the accrual basis of accounting. Prior to the date of adoption of SFAS 112, the
Company already accounted for the majority of these benefit costs on the accrual
method. Consequently, the effects on the Company of adopting the standard were
not material and have been charged to operating costs in the accompanying
Statement of Operations.
5. On April 7, 1994, the stock redemption agreement between the Company
and Mr. D. Tennant Bryan, Chairman of the Executive Committee of the Board of
Directors, was amended and restated. Under the terms of the former agreement,
the Company was obligated to purchase some of the Class A shares of the Company
owned by Mr. Bryan at his death. The number of shares required to be acquired
was determined by reference to certain taxes and other expenses which would be
incurred by Mr. Bryan's estate, and the price per share would be 90% of the
market price of the shares during a period immediately preceding his death. At
December 26, 1993, the Company's obligation for the purchase of Class A shares
under the former agreement would have approximated $37 million.
The amended agreement provides that upon Mr. Bryan's death, his estate has
the option to sell and the Company has a separate option to buy the lesser of
(a) 15% of the Company's Class A stock owned by Mr. Bryan at his death and (b) a
sufficient number of shares of Class A stock to fund estate taxes and certain
funeral and administrative expenses. The purchase price for each share redeemed
under the amended agreement will equal 90% of the average daily closing price
for a share of Class A stock during the 91 days preceding the date that is 30
days after the date of death. The agreement also provides that, if the estate
pays taxes in installments over a period of time, and if a redemption right has
been exercised, the Company in certain circumstances also may elect to pay the
redemption price in installments, plus interest at the rate paid by the estate.
If the Company or the estate had exercised an option, respectively, to buy or
<PAGE> 7
sell, the maximum cost to the Company of the redemption would have approximated
$9 million at September 25, 1994.
6. On May 20, 1994, the Company sold its 40% common equity interest in
Garden State Newspapers, Inc. (GSN), along with its GSN Series A and Series C
Preferred Stock, for $63 million in cash. Additionally, the Company received
1,200 shares of $25,000 par, 9% cumulative preferred stock of Denver Newspapers,
Inc. (previously owned by GSN), including accumulated and unpaid dividends of
approximately $17.4 million thereon. The stock is valued at $34 million, net of
an unamortized discount of $27.3 million, based on an imputed discount rate of
12% and a redemption date of June 30, 1999. The sale resulted in a gain of
$91.5 million ($83.3 million after-tax; $3.17 per share). The cash proceeds
from the sale were used immediately to pay down debt ($53 million) and for
investment in short-term fixed income instruments ($5 million). The balance was
applied to transaction costs and utilized for other corporate purposes.
As more fully explained in Note 3 to its 1993 consolidated financial statements
(incorporated by reference in the Company's 1993 Annual Report on Form 10-K),
the Company's investment in GSN had been reduced to zero in 1991 as a result of
a GSN loss in that year, and the Company had not recognized any equity in GSN's
operating results since then.
7. On September 28, 1994, the Company exercised an option, for $40,000,
to purchase 40% of the common stock of Denver Newspapers, Inc. (DNI), the parent
company of The Denver Post. The Company already owned the preferred stock of
DNI and held the right to elect half of DNI's directors. Effective with the
fourth quarter, Media General will recognize in its earnings 40% of DNI's net
income applicable to common stockholders under the equity method of accounting.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Media General, Inc., is a diversified communications company with wholly owned
subsidiaries operating within three principal business segments: newspaper
publishing, broadcast and cable television operations, and newsprint
manufacturing. In addition to the three principal business segments, the
Company has auxiliary operations in the financial and business publishing, and
commercial printing fields. The Company also participates in newspaper
publishing (see Note 7) and newsprint manufacturing joint venture operations,
the operating results of which are recognized under the equity method of
accounting.
As more fully described in the "Other income (expense)" section of this
Discussion and in Note 6 to the accompanying financial statements, the Company
sold its investment in Garden State Newspapers, Inc., in May 1994, realizing a
gain of $91.5 million ($83.3 million after-tax).
The Company's businesses are somewhat cyclical; the second and fourth quarters
are typically stronger than the first and third quarters.
The Company's financial reporting year is a fiscal year which ends on the last
Sunday in December. Interim quarterly reporting periods consist of four 13-week
periods. Results for the current year are compared to those of the equivalent
quarterly and year-to-date periods of the prior year in the accompanying
consolidated financial statements.
<PAGE> 9
INCREASE (DECREASE) IN OPERATING COMPONENTS
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept. 25, 1994, Sept. 25, 1994,
Compared to Compared to
Equivalent Equivalent
Period Last Year Period Last Year
------------------- --------------------
Increase (Decrease) Increase (Decrease)
(000's) Amount Percent Amount Percent
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 7,665 5.2 % $ 14,890 3.4 %
Production costs 2,520 3.1 3,620 1.5
Selling, distribution
and administrative 2,491 6.2 5,150 4.3
Depreciation and amortization (367) (2.5) (1,640) (3.7)
Operating income 3,021 24.0 7,760 20.0
Other income (expense) 1,461 (29.6) 91,775 (650.9)
Income before income taxes 4,482 58.4 99,535 403.6
Income taxes 1,555 60.3 11,323 141.3
Net income 2,927 57.4 88,212 529.9
</TABLE>
<PAGE> 10
REVENUES
Consolidated revenues increased $7.7 million (5.2%) and $14.9 million (3.4%) in
the third quarter and first nine months of 1994, respectively, compared to the
equivalent periods of 1993.
Newspaper segment revenues for the quarter and nine-month periods ended
September 25, 1994, rose 6.5% and 5.5%, respectively, from the comparable 1993
periods. Within the three daily newspapers which comprise the Company's
metropolitan daily newspaper group, advertising revenues increased in both the
third quarter and the year to date (by 7.7% and 6.3%, respectively), reflecting
average rate increases of 4% and 3.5% above the comparable year-ago periods,
combined with increases of 3.5% and 2.7% in advertising linage in those same
periods. Although increases in classified (primarily in the employment and
automotive categories) and general advertising produced most of the revenue
gains in both periods, retail advertising (particularly in the department store
category) also contributed to the improvement. Circulation revenues rose 3.3%
and 2.9% in the third quarter and first nine months of 1994, the result of
circulation rate increases of 3.8% and 4.5% which more than offset combined
circulation volume declines of .5% and 1.6% from the comparable year-ago
periods.
Television segment revenues increased $1.3 million (2.9%) and $4.3 million
(3.3%) in the third quarter and first nine months of 1994, from the comparable
year-ago periods. The increase was principally attributable to the Company's
broadcast TV stations, where combined revenues rose $1.7 million (13.7%) and
$4.7 million (12%) in the third quarter and nine months on strong national and
local advertising (particularly in the automotive segment) and increased
political advertising. During the second quarter three of the Tampa market's
four major broadcast TV stations announced they will change their network
affiliations; the changes are now expected to occur simultaneously in December
1994. In that market, only Media General's flagship station, WFLA-TV, will
retain its historical network affiliation. Revenues of the Company's Fairfax
County, Virginia, cable system (Fairfax Cable) decreased slightly in the third
quarter and first nine months of 1994, down 2.3% and 1.2%, respectively, from
the year-ago periods. The effects of the 3% year-over-year growth in the number
of subscribers, to 210,207 at September 25, 1994, combined with strong third-
quarter studio production revenue and, in the year to date, increased
installation revenue (up 64.1%), were more than offset by declines of 5% and
5.1% in average revenue per subscriber in the three and nine-month periods ended
September 25, 1994. The decrease in average revenue per subscriber reflects a
decline in the percentage of subscribers taking expanded cable service which, to
a significant degree, is attributable to the Cable Television Consumer
Protection and Competition Act of 1992 (Cable Act), which now allows subscribers
who take basic cable service to subscribe directly to premium channels. On
September 1, 1993, Fairfax Cable implemented new rates to comply with the rate
regulation provisions of the Cable Act. Those rates resulted in increased bills
for some subscribers, and decreased bills for others, but had an essentially
revenue-neutral effect when compared to the total average monthly rate charged
all subscribers as a group. On March 30, 1994, the Federal Communications
Commission (FCC) announced the adoption of further detailed rules intended to
govern rates which cable operators may charge subscribers. While a number of
issues associated with cable reregulation remain unresolved, and while the
overall effect of the rules to-date has not been material to the Company's
financial position or results of operations, reregulation has had the effect of
limiting the revenue growth of those cable services that are now regulated.
Consequently, Fairfax Cable's near-term revenue growth will be largely dependent
upon its success in increasing its subscriber base and in expanding subscriber
<PAGE> 11
use of its unregulated services, such as pay-per-view programming. Cable rates
remain subject to both local franchise authority and FCC review.
Newsprint segment revenues increased $1.9 million (7.1%) in the third quarter of
1994, but decreased $2.1 million (2.7%) in the first nine months of 1994 from
the year-ago periods. The increase in third quarter revenues resulted largely
from the recognition, in the third quarter, of both second and third quarter
royalty income ($.9 million per quarter) due from the Company's Mexican
newsprint affiliate, and from increased tonnage sold by the Company's Garden
State Paper newsprint mill, located in Garfield, New Jersey. During the second
quarter, the scheduled royalty income from the Company's Mexican newsprint
affiliate had not been recognized due to that affiliate's notification to the
Company that it was then unable to fund the scheduled payment. The Company
subsequently reached an agreement with that affiliate for the payment of all
royalties owed the Company, and recognized royalty income earned through
September 25, 1994, in the third quarter (see subsequent discussion regarding
the sale of the Company's 49% interest in its Mexican affiliate). The Company
expects to recognize the final royalty income ($151 thousand) due under the
agreement with its Mexican newsprint affiliate during the fourth quarter. Third
quarter newsprint revenues also rose as a result of a 2.2% (1,255 ton) increase
in tonnage sold, which more than offset a small decline (.9%) from the year-ago
period in the average newsprint selling price realized. The decrease in year-
to-date newsprint revenues was attributable to declines in the average newsprint
selling price realized and in tonnage sold of 5% and .7%, respectively, from the
comparable period of 1993. The decline in the average year-to-date selling
price resulted from pricing pressure attributable to a supply and demand
imbalance that began during the latter half of 1993 and continued until late in
the first-half of 1994. However, increased newsprint demand beginning mid-year
has enabled the Company to reduce its selling price discounts. As a result,
average realized newsprint selling prices of $387/ton in the first quarter rose
to $417/ton in the third quarter, and to $425/ton in September. On October 1,
1994, the Company announced a further 7% reduction of its selling price
discount. Although effective on January 1, 1995, due to existing contractual
commitments the Company does not expect its newsprint selling price to reflect
the full benefit of this most recently announced discount reduction until late
in the first quarter of 1995. The Garden State mill is operating at full
capacity, and is sold-out through 1995. As mentioned, the Company recently
revised its agreement with the majority owner of its Mexican newsprint affiliate
regarding the sale, for $3.6 million, of the Company's 49% interest in that
affiliate. Originally scheduled to occur on October 15, 1994, the sale will now
become effective on January 31, 1995, for $3.6 million plus interest from the
originally scheduled sale date.
OPERATING COSTS
Production costs increased $2.5 million (3.1%) and $3.6 million (1.5%) in the
third quarter and first nine months of 1994, respectively, from the equivalent
year-ago periods. The third quarter reflects a $.8 million (2.8%) increase in
employee compensation and benefit costs, a $.7 million increase in the cost of
waste news at the Company's Garden State paper newsprint mill, up 20% as a
result of price escalations resulting from increased Canadian and offshore
demand, a $.5 million (15.1%) increase in maintenance and repairs (principally
attributable to increased aerial line maintenance and converter repair costs at
the Company's cable operations), and a $.4 million (2.8%) increase in the cost
of newsprint, reflecting a 4.9% increase in tonnage used, offset somewhat by a
4.4% decrease in average cost per ton for the period. Combined with other
production cost increases, these more than offset a $.7 million (32.8%) decline
in insurance costs, down principally as a result of reduced workers'
<PAGE> 12
compensation expense at the Company's newspaper operations. In the year to
date, increases of $3 million (3.3%) in employee compensation and benefit costs,
$.9 million (10%) in waste news, and $.5 million (2.4%) in programming expense
(principally cable), together with a moderate rise in fuel and utilities (up
2.3% on increased volume), more than offset declines of $2.3 million (31%) in
insurance costs (primarily workers' compensation, the result of aggressive
safety awareness programs) and $1.3 million in the cost of newsprint consumed.
This decrease in the cost of newsprint resulted from a 6.9% decline in the
average cost per ton which more than offset a 2.6% increase in tons consumed.
Selling, distribution and administrative costs increased $2.5 million (6.2%) and
$5.2 million (4.3%) in the quarter and nine months ended September 25, 1994,
from the same periods of 1993. Third quarter increases of 1.7% in employee
compensation and benefits expense, together with increases in agency commissions
(up due to expanded revenues), advertising, and other administrative expenses,
more than offset a decline in bad debt expense, due principally to improved
collection results and receivables aging at the Company's newspaper and
broadcast TV operations. Similarly, in the year to date, employee compensation
and benefit cost increases of 2.9%, combined with increases in agency
commissions, advertising and other administrative expenses, more than offset
reduced bad debt expense.
Depreciation and amortization expense decreased $.4 million (2.5%) and $1.6
million (3.7%) in the third quarter and first nine months of 1994, from the
comparable year-ago periods. In the year to date, the decline occurred in all
of the Company's principal business segments and was attributable to certain
newspaper press, broadcast and other equipment becoming fully depreciated. In
the third quarter, depreciation expense declines in the Company's television,
newsprint and auxiliary segments more than offset increased newspaper segment
depreciation, the result of the third quarter completion and placement in
service of the Winston-Salem Journal's new production facility. Although
depreciation expense related to that new facility will approximate $2.3 million
annually, full-year 1994 depreciation and amortization expense for the Company
as a whole is expected to remain at the 1993 level.
OTHER INCOME (EXPENSE)
Interest expense decreased $1.2 million and $2.9 million in the quarterly and
year-to-date periods ended September 25, 1994, from the comparable prior year
periods. The decreases were principally the result of the significant decline
in average debt outstanding (down $85 million from the first nine months of
1993) which more than offset the effect of a 160 basis point rise in the
Company's average borrowing rate (to approximately 8.7% for the first nine
months of 1994) from the year-ago period. Cash proceeds from the second quarter
sale of the Company's investment in Garden State Newspapers, Inc. (GSN), and
increased cash flows from operations were the principal factors which enabled
the Company to effect the significant debt reduction.
The Company's share of the operating results of its Southeast Paper (SEPCO)
newsprint affiliate declined in the year-to-date period, to a loss of $1.5
million compared to earnings of $.1 million in the year-ago period. The
Company's share of SEPCO's third quarter earnings improved slightly, however, to
$141 thousand from $134 thousand in the third quarter of 1993. The nine-month
decline was primarily attributable to a decrease in the average selling price
realized, down 4.9% from the comparable year-ago period, which more than offset
the effect of a 4.6% increase in tons sold. The third quarter improvement
resulted from a 9.6% increase in tons sold, and from a slight rise (.2%) in the
average realized selling price. Together, these more than offset increased
<PAGE> 13
production and other costs. As was the case with Media General's wholly owned
newsprint operations, SEPCO experienced some selling price improvement during
the third quarter, rising to $423/ton in September from approximately $370/ton
at the beginning of 1994.
On May 20, 1994, the Company sold its investment in GSN for cash of $63 million
and preferred stock of Denver Newspapers, Inc. (DNI) with a fair value of $34
million. The sale resulted in a gain of $91.5 million ($83.3 million after-tax;
$3.17 per share), and concluded the Company's relationship with that venture
which had begun in 1985. In 1991, the Company's investment in GSN had been
reduced to zero, and the Company had not recognized any equity in GSN's
operating results since then. See Note 6 for a further discussion of the GSN
sale.
On September 28, 1994, the Company exercised an option, for a nominal price, to
purchase 40% of the common stock of DNI, the parent company of The Denver Post,
a morning newspaper with daily and Sunday circulation of 294,000 and 459,000,
respectively. The Company already owned the preferred stock of DNI and held the
right to elect half of DNI's directors. Effective with the fourth quarter,
Media General will recognize in its earnings 40% of DNI's net income applicable
to common stockholders under the equity method of accounting.
Other income, net, increased $.3 million in the current quarter but decreased
$1.1 million in the first nine months compared to the equivalent periods of
1993. The year-to-date decline was primarily the result of the absence in the
current year of insurance proceeds recognized in connection with a late-1992
fire.
NET INCOME
Net income for the third quarter and first nine months of 1994 was $8 million
and $104.9 million, respectively. Nine-month results include an after-tax gain
of $83.3 million ($3.17 per share) from the sale, in the second quarter of 1994,
of the Company's investment in GSN. Excluding the GSN gain, net income was $8
million and $21.6 million in the quarter and nine-months ended September 25,
1994, compared to $5.1 million and $16.6 million for the same periods of 1993,
an increase of 57% and 30%, respectively.
The following discussion focuses on the pretax operating income of each of the
Company's principal business segments, and on income taxes.
Newspaper segment operating income rose $3.2 million (119%) and $11.8 million
(136%) in the third quarter and first nine months of 1994, respectively, from
the comparable 1993 periods. The increase was primarily attributable to
combined revenue growth of 6.5% and 5.5% in the quarter and nine months,
together with moderate operating cost increases, up 2% and .1% from the year-ago
periods. Television segment operating income declined $.3 million (4.2%) in the
quarter, but was essentially flat in the year to date. Within that segment,
improved broadcast TV results on strong national, local and political
advertising revenue growth were offset by a decline in cable TV profits,
principally the result of reregulation. Newsprint segment operating income
declined $4.3 million in the year to date on reduced newsprint selling prices
for the nine-month period, but increased slightly ($.1 million) in the third
quarter principally as a result of the resumption of royalty income from the
Company's Mexican newsprint affiliate.
Income taxes rose $1.6 million and $11.3 million in the third quarter and first
nine months of 1994 from the comparable 1993 periods. Excluding from the year
<PAGE> 14
to date the second quarter 1994 GSN gain and income taxes thereon of
approximately $8.3 million, income tax expense for the current quarter and nine
months rose $1.6 million and $3 million from the comparable 1993 periods. The
Company's effective tax rate increased to approximately 34% in both the third
quarter and first nine months of 1994, from 33.6% and 32.5% in the same periods
of 1993, principally the result of the retroactive corporate tax rate increase
enacted in August 1993.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated by operating activities during the first nine months of 1994
totaled $76.5 million, up $16.7 million from the comparable period of 1993. The
increase was due principally to improved profitability, to the increase in funds
generated by comparative reductions in accounts receivable and inventories, and
to a reduction of funds used to reduce current liabilities. Funds generated by
investing activities during the nine months ended September 25, 1994, include
$57.5 million of net cash proceeds from the sale of GSN.
During the first nine months of 1994, the primary use of cash was $84.8 million
for the curtailment of long-term debt, $49.5 million for capital expenditures
($29.1 million of which related to the new Winston-Salem Journal production
facility which was completed and placed in service during the third quarter at a
total cost of $44 million), and $8.7 million for the payment of dividends to
shareholders. The Company's ability to decrease its total debt by $84.8 million
during the first nine months of this year was the combined result of the GSN
sale, and management's decision to utilize the majority ($53 million) of the net
cash proceeds from that sale to immediately curtail debt, and of increased cash
flows from operating activities.
The Company anticipates that funds generated by operating activities during the
remainder of 1994 will be adequate to finance projected capital expenditures,
dividends to shareholders, and working capital needs.
Total long-term debt at September 25, 1994, was $177 million, down significantly
from $261.8 million at December 26, 1993, and $276.8 million at September 26,
1993. As a result of the decline in borrowings, the Company's ratio of debt to
total capitalization decreased to 35.6% at September 25, 1994, from 53.7% at the
beginning of the year and 55.9% at September 26, 1993. Barring unexpected funds
requirements, the Company presently intends to invest any excess funds generated
during the remainder of the year in short-term cash equivalent instruments. To
ensure continued flexibility should unexpected needs or opportunities arise, the
Company has available unused bank credit lines of $156 million under revolving
credit agreements with five banks, and an uncommitted credit facility with an
insurance company which provides for additional long-term borrowings of up to
$85 million at prevailing interest rates.
OUTLOOK
Despite ongoing profit pressure at the Company's cable television franchises and
sharply higher raw material costs at its newsprint units, the Company expects
continued strength at its newspaper and broadcast TV operations, and prospects
for the fourth quarter remain positive.
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2. Media General, Inc., Affiliated Newspaper Investments, Inc., and
Denver Newspapers, Inc., Second Amended and Restated Stock and Warrant
Purchase and Shareholders' Agreement dated May 20, 1994, incorporated
by reference to Exhibit 2 of Form 8-K dated September 28, 1994.
27. Financial Data Schedule
(b) Reports on Form 8-K
On October 12, 1994, the Company filed a Form 8-K to report the
acquisition, on September 28, 1994, of 40% of the common stock of Denver
Newspapers, Inc., through the exercise for $40,000 of a warrant.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA GENERAL, INC.
DATE: November 8, 1994 /s/ J. Stewart Bryan III
---------------------------------
J. Stewart Bryan III, Chairman,
President and Chief Executive Officer
DATE: November 8, 1994 /s/ Marshall N. Morton
---------------------------------
Marshall N. Morton,
Senior Vice-President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA
GENERAL, INC.'S CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> SEP-25-1994
<CASH> 2,665
<SECURITIES> 0
<RECEIVABLES> 61,625
<ALLOWANCES> 0
<INVENTORY> 10,971
<CURRENT-ASSETS> 102,367
<PP&E> 522,939
<DEPRECIATION> 0
<TOTAL-ASSETS> 778,838
<CURRENT-LIABILITIES> 99,868
<BONDS> 176,500
<COMMON> 131,386
0
0
<OTHER-SE> 188,556
<TOTAL-LIABILITY-AND-EQUITY> 778,838
<SALES> 459,190
<TOTAL-REVENUES> 459,190
<CGS> 244,708
<TOTAL-COSTS> 244,708
<OTHER-EXPENSES> 42,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,217
<INCOME-PRETAX> 124,198
<INCOME-TAX> 19,338
<INCOME-CONTINUING> 104,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,860
<EPS-PRIMARY> 3.99
<EPS-DILUTED> 3.99
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